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Mark Hauser, co-managing partner at Hauser Private Equity, provides expert advice on how to choose a financial advisor.

Meeting predetermined financial goals requires a carefully planned and executed strategy. Achieving success involves long-term financial discipline along with guidance from a credentialed financial advisor. Aligning with the right person is key to implementing a targeted investment plan that will get the desired results. Private equity principal Mark Hauser says consumers should perform their due diligence to ensure they select the best candidate. 

What Does a Financial Advisor Do? 

Financial advisors may offer a limited or wide-ranging services menu. Many advisors provide clients with these seven core financial services. In addition, financial advisors may add targeted services for specific markets or client goals. 

Debt Management Program: Clients overwhelmed by debt often lack a realistic repayment structure. A financial advisor will create a workable strategy to repay mortgages, car loans, student loans, credit card bills, and/or other debts. The advisor should educate the client on the discipline required to achieve these challenging goals. 

Insurance Advice: Financial advisors often analyze a client’s existing insurance policies to pinpoint coverage gaps that could create potential liabilities. The advisor may also recommend targeted policies such as long-term care or disability insurance, depending on the client’s needs. If the advisor is not a licensed insurance agent, the client must purchase the policies from an agent of their choice. 

Strategic Investments: In formulating (and implementing) an investment strategy, a financial advisor keeps each client’s goals and risk tolerance at the forefront. Ideally, the advisor chooses investments that meet these parameters. Because certain investments may become less desirable over time, the advisor should re-evaluate each client’s priorities and revise the investment program accordingly. 

College Funding: Clients who want to save for their children’s (or grandchildren’s) college education need a strategy to achieve this goal. A financial advisor can craft a college plan that meets this objective over time. 

Retirement Plan Structure: Aspiring retirees often need help in designing a strategy to fund their retirement. A financial advisor can create a plan that helps retirees to accomplish their goals and live comfortably once they reach retirement. 

Tax Planning: A financial advisor may recommend legal ways to decrease a client’s tax burden. However, many financial advisors are not tax experts. Therefore, Mark Hauser recommends that clients also consult with a Certified Public Accountant (or CPA) or credentialed tax advisor. 

Estate Plan Execution: Some clients want to ensure that family members and/or charitable causes receive the client’s estate-related benefits. A financial advisor can structure this wealth transfer to comply with the client’s wishes while meeting applicable legal and financial requirements. 

Four Primary Types of Financial Advisors 

Understanding the types of financial advisors will help potential clients to select the advisor that represents the best overall fit. Learning how the advisor receives their compensation is an important first step. 

Equipped with this information, the client can determine whether the provided advice will help achieve their goals or simply benefit the advisor’s bank account. Private equity expert Mark Hauser says potential clients should take time to understand this important distinction. 

Fee-Only Financial Advisors 

A fee-only financial advisor solely receives fees from their client services. The advisor may charge a flat rate, an hourly rate, or a percentage of each client’s managed assets. Most fee-only advisors work within this model to minimize any conflict of interest. 

In this regard, fee-only advisors are considered fiduciaries. As such, they are legally required to act in each client’s best interest rather than recommending investments that would benefit the advisor’s bottom line. 

Commission-Based Financial Advisors 

Some commission-based financial advisors solely make money from selling third-party products to clients. Other commission-based advisors charge fees while also receiving third-party sales commissions. 

Either way, financial advisors who receive commissions are not fiduciaries. Instead, they are salespeople for insurance brokerages and investment firms. In this capacity, they must only comply with a suitability standard. This means the advisor’s commission-based investments must be suitable for each client, although they might not be the best choice for the client’s needs. 

An Important Fiduciary-Related Distinction 

With that said, certain financial products (such as life insurance) are usually sold on a commission-only basis, points out Mark Hauser. To illustrate, a fee-based financial advisor who receives life insurance commissions may still prioritize a client’s best interests when providing other types of financial advice. When working with non-commissioned products, the advisor may still act as a fiduciary. 

Registered Investment Advisors 

A Registered Investment Advisor (or RIA) is a firm that offers fiduciary financial services to clients. Each RIA hires a few (or many) fiduciary-bound Investment Advisor Representatives (or IARs). An IAR can adopt the “financial advisor” designation and may utilize a fee-based or fee-only compensation structure. 

Certified Financial Planners 

Certain IARs have completed the training necessary to become a Certified Financial Planner (or CFP). To earn this coveted designation, the advisor typically has many years of experience in the financial services industry. In addition, a CFP has passed difficult industry exams encompassing investments, insurance planning, and real estate. 

Because of the CFP’s wide-ranging experience, many people with complex financial scenarios work with these credentialed professionals. Private equity investor Mark Hauser affirms that Certified Financial Planners command wide respect within the financial industry. 

Choosing a Financial Advisor: 5 Factors to Consider 

Currently, financial advisors are not regulated by the United States government or other central authority. In addition, a clearly defined “financial advisor” standard does not exist, in contrast to a physician’s or attorney’s license. For these reasons, Mark Hauser states that potential clients should perform their due diligence when selecting a financial advisor to guide them in reaching their goals. 

Verify the Advisor’s Professional Credentials 

Potential clients should always verify a financial advisor’s professional credentials before committing to work with them. Confirm a Certified Financial Planner’s credentials via the CFP Board website. As with any credentialed advisor, however, an official designation does not necessarily mean the advisor will always act in the client’s best interest. 

Determine the Advisor’s Compensation Method 

As noted, a fee-only financial advisor only receives compensation from their clients, not from product sales commissions. Therefore, this financial advisor is considered a fiduciary who acts in each client’s best interest. 

In contrast, a commission-based financial advisor benefits from their recommended product offerings to clients. Potential clients should ensure that they understand each financial advisor’s method of compensation. 

Look for an Empathetic, Focused Advisor 

Ideally, a financial advisor will understand each client’s goals on a personal level and will express that understanding and support. Despite market fluctuations and other external events, the advisor will keep their client focused on their overarching goals. 

Seek an Education-Focused Professional 

Ideally, each financial advisor will regularly invest in their continuing education. Specifically, the advisor should complete ongoing training in complex areas such as tax issues impacting retirement savings. Complicated 401(k) and Individual Retirement Account (or IRA) laws also frequently change, and advisors should remain current on their knowledge. 

Demand Respect and Clarity 

A reputable financial advisor should willingly answer a client’s questions without making them feel unintelligent or uneducated. The advisor should not charge unexplained fees, offer only products that directly benefit them, or perform trades without client authorization. Clients who feel patronized, or who don’t receive clear answers to their questions, should immediately find another advisor. 

Two Alternative Financial Advisory Options 

Financial advisors typically work with clients who have a stable income and the ability to invest a substantial portion of these funds. With that said, potential investors who don’t quite meet this requirement have two workable financial advisory options. 

NAPFA-Registered Financial Advisor 

The National Association of Personal Financial Advisors (or NAPFA) maintains a directory of NAPFA-Registered Financial Advisors. These fee-only professionals do not market financial products, allowing them to maintain their objectivity. 

Each NAPFA-Registered Financial Advisor has met strict competency standards. In addition, these advisors are fiduciaries who take each client’s entire financial picture into account when making financial decisions. Learn more, and find a NAPFA-Registered Financial Advisor via the Association’s website. 

Robo-Advisor Platforms 

Budget-conscious investors may consider investing through a robo-advisor service. These digital platforms conduct online surveys about each client’s goals and financial situation. 

Based on the survey results, the robo-advisor uses an algorithm to select and execute an investment strategy. Robo-advisor clients benefit from security enhancements, client education, and low account and transaction fees. 

Investors may consider using a robo-advisor to help achieve longer-term goals such as retirement planning. In addition to the standard automated investment offerings, many robo-advisors provide a la carte financial planning services. 

Re-evaluating Priorities is Key 

A client’s financial situation often changes over time. Business success or career achievement may bring additional financial resources into play. In contrast, the loss of a job or an economic downturn may mean the client needs to rethink their investment priorities. Mark Hauser emphasizes that a reputable financial advisor will provide guidance that enables each client to make the decision that will best address their targeted goals.